Local treasurers see influx in requests for prepayment of 2018 taxes with new tax law taking effect Jan. 1

Oakland County Treasurer Andy Meisner. The new federal tax laws, which take effect Jan. 1, will not benefit middle class families but instead have a positive impact on wealthier Americans, according to Meisner. (Mark Cavitt/The Oakland Press)

Bloomfield Township Treasurer Brian Kepes said Oakland County residents are not allowed to prepay their 2018 taxes before the new tax law takes effect Jan. 1 and there’s nothing local officials, or residents, can do about it.

But that hasn’t stopped dozens of people over the past two days from calling and emailing Kepes’ office, which collects taxes in Michigan’s second wealthiest ZIP code, with requests to prepay their 2018 property taxes to beat the deadline.

And it hasn’t stopped more residents from paying 2017 winter taxes before Jan. 1 to beat the Feb. 14, 2018 deadline. Kepes said $12 million in winter 2017 taxes have been collected by his office over the past two days.

According to the new law, annual itemized deductions will be capped at $10,000 on state and local taxes. The IRS sent out a notice Wednesday further clarifying the new tax bill, signed into law last week by President Trump, in saying that prepayment of 2018 property taxes is not allowed unless that tax was assessed and paid in 2017.

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The notice reads, “In general, whether a taxpayer is allowed a deduction for the prepayment of state or local real property taxes in 2017 depends on whether the taxpayer makes the payment in 2017 and the real property taxes are assessed prior to 2018. A prepayment of anticipated real property taxes that have not been assessed prior to 2018 are not deductible in 2017. State or local law determines whether and when a property tax is assessed, which is generally when the taxpayer becomes liable for the property tax imposed.”

Michigan’s 2018 property taxes will not be assessed until spring 2018. In Oakland County, the summer tax bills are mailed July 1 every year and due without penalty on Aug. 31. The winter bill is mailed Dec. 1 and is due without penalty on Feb. 14 of the next year.

Even if the IRS had not clarified prepayments, Michigan law prohibits prepayments of property taxes if assessments have not been made and billed.

“Therefore, Michigan’s 2018 property taxes are not deductible on the taxpayer’s 2017 tax return,” said Danelle Gittus, spokesperson for the state Department of Treasury.

Kepes said he received $6 million in early tax payments on Wednesday and another $6 million on Thursday, the most he’s seen in a two-day period.

“Typically we don’t get anywhere near that kind of money coming in (in such a brief time span),” said Kepes. “I will be going to my office (this weekend) to empty our depository. We will process them as of Dec. 31 so everyone gets their 2017 deduction.”

In 2014, the average tax liability in the township was $72,864, second highest in the state to Bloomfield Hills at $86,111.

In Oakland County, the July tax bill is comprised of city, local school district, Oakland Community College, Oakland County and State Education taxes. The December bill is comprised of Huron-Clinton Metro Park, Oakland County Parks and Recreation, Oakland County Public Transportation Authority, Zoo Authority, Art Institute and some partial school taxes.

Oakland County Treasurer Andy Meisner said he received the IRS via email. Although he, and local treasurers, were actively exploring ways to minimize the financial harm on residents that deduct more than $10,000 from their taxes and could have benefited from prepayment, the IRS notice has eliminated those options.

“With the change in the federal tax law there has been a lot of interest in opportunities for prepayment,” said Meisner. “The new tax law had specifically prohibited prepayment of state and local income tax but it didn’t speak to property taxes. The IRS chimed in on Wednesday and spoke to them.”

Payment of property taxes are 100 percent done at the local level, with property tax collection only being turned over to Meisner’s office if delinquent.

Kepes said he was communicating with treasurers across the state, including Meisner, in trying to find ways to accommodate some residents as the year was winding down. This was before the IRS clarified property tax prepayments.

“Our residents are intelligent and they get it,” said Kepes. “People understand the situation but don’t necessarily like it and I completely understand as both a taxpayer and treasurer. It’s frustrating but that’s what the law is. You can’t pay 2018 property taxes in 2017.”

Some residents have attempted to overpay on their 2017 taxes in order to bypass this new deduction cap but unfortunately, that won’t do anything.

According to Kepes, if someone overpays on their current year taxes, that check will cashed by the local municipality and be applied towards their 2017 taxes. In 2018, the locals will then refund the difference.

“It’s unfortunate that the details of this legislation weren’t more widely dispersed so residents could have had a really good understanding of all the effects of the law, especially the pieces that affect payment of year-end taxes,” said Kepes. “Our residents didn’t have a chance to maximize any opportunity to pay their year end taxes and really study the law.”